1. Field of the Invention
The present invention relates generally to a method and apparatus for computer display of information relating to certain tradable interests and, in particular, to a method and apparatus for display of information with respect to investment instruments, such as options or the like, traded on an exchange.
2. Description of the Related Art
Most people are familiar with stocks as a share of a company and know that stocks are traded on an exchange. Stocks are also known as equities, where equities are generally classified as “listed”; implying that they trade in a regulated exchange environment (like the New York Stock Exchange or Philadelphia Stock Exchange), or “OTC” (over the counter) which implies that they trade over-the-counter (between NASD member firms in a less regulated dealer-to-dealer network). Listed stock symbols are made up of three or fewer letters (i.e. TYC) whereas OTC stocks have at least four letters (i.e. MSFT). Regional exchanges in recent years have begun to list OTC stocks as their volumes have increased. Typically, listed stocks are viewed as more liquid since they are serviced by a Specialist in an exchange environment who is responsible for providing a fair and orderly market at all times. However, the proliferation of electronic communications networks (ECNs) has narrowed the distinction between listed and OTC stocks.
In addition to equities, debt instruments, such as bonds, are another type of investment instrument or security. Trading is also conducted in options and futures. The term “option” is short for option contract, which is a securities contract which conveys to its owner the right, but not the obligation, to buy or sell a specific amount of a particular stock, commodity, currency, index, or debt, at a specified price on or before a given date. An option to buy is referred to as a call option, or simply a call, and an option to sell is referred to as a put option, or simply a put. The price specified in the option contract is referred to formally as the exercise price, and informally as the strike price. For stock options, the amount of an option contract is usually 100 shares.
Each option has a buyer, called the holder, and a seller, known as the writer. If a call stock option contract is exercised by the holder, a writer is responsible for fulfilling the terms of the contract by delivering the shares to the holder. In the case of an option that does not have an underlying interest that can be delivered, such as an index, the contract is settled in cash.
Options are most frequently used as either leverage or protection. As leverage, call stock options allow the holder to control equity in a limited capacity for a fraction of what the shares would cost. The difference can be invested elsewhere until the option is exercised. There are listed options on thousands of stocks, some of which are more heavily traded than others. Dealers make markets in many options at a time. The more options managed, the more the dealer grows his or her business.
The term “futures” are short for futures contract, which is an agreement to make or take delivery of a commodity, bond, security or stock index at a specified future time and price. Futures contracts are traded on individual U.S. equities.
Many variations on options and futures have been developed. Equities, commodities, options, and futures, as well as other securities and investments and the like are included in the term tradable interests.
A liquidity provider is a person who buys and sells tradable interests, often for the person's own personal account rather than on behalf of a client. A liquidity provider may buy and hold these interests for a short period of time with the goal being to profit from short term gains in the market. A liquidity provider may be an options exchange member who makes bids and offers for his or her own account. A liquidity provider may in some instances be referred to as a trader, a market maker, or a local dealer.
Trading is conducted by a liquidity provider by placing bids and/or offers, where a bid or bid price is the highest price that a liquidity provider is willing to pay for a given tradable interest at a given time. An offer or ask price is the lowest price that a liquidity provider will sell a tradable interest for.
In order for there to be a market for a tradable interest, there needs to be a person to buy and a person to sell. Markets are enhanced by people willing to step in and buy when there is no natural buyer or sell when there is no natural seller. People that do this in an exchange or exchange-like environment are often referred to as market makers, and are also considered liquidity providers. The prices at which they are willing to transact are called quotes.
A quote is a price and size at which the liquidity provider is willing to initiate a trade. The price and size at which the liquidity provider is willing to buy is the bid and bid size and the price and size at which the liquidity provider is willing to sell is the ask or offer and ask size or offer size. Ask and offer refer to the same thing. The difference between the bid price and the ask price is the bid/ask spread, also referred to simply as the spread.
For the market maker-type liquidity providers, the objective is to engage in as many transactions as possible at the liquidity provider's price to capture the spread. To be able to participate in a large number of transactions, the liquidity provider must monitor large amounts of data from the exchange or exchange-like environment. Liquidity providers will often monitor or participate in trading on thousands of tradable interests at the same time. The information being monitored is received from one or more exchanges and represents the quotes of many liquidity providers and transactions that have taken place. For active tradable instruments the information can change rapidly. The trading information is displayed on display screens, such as computer screens or the like. It is not uncommon for a market maker-type liquidity provider to have six or eight computer screens in front of them to display the exchange data. Even with this number of screens, a liquidity provider may be able to view a small fraction of the activity in his or her portfolio. There exists a need to filter and condense this quantity of information to fewer screens so that the liquidity provider is able to view and use the information.
Liquidity providers who disseminate and/or monitor option quotes on many stocks simultaneously have a difficult time monitoring prices for more than a small number (or maybe even from one) of those option classes at any one time since each stock has one or more pages of options quotes and the liquidity providers typically have a limited amount of screen space. Even if the liquidity provider is able to monitor many screens simultaneously, it is extremely difficult to quantify which quotes present the best trading opportunities
Trading organizations that evaluate real-time market data are forced to process a mammoth amount of quote information. One can only view a page of information at one time and users are limited in terms of the number of screens that are available to monitor the market information that applies to the portfolio of tradable interests with which they have a trading interest. Only a small portion of all option quote information relates to a single portfolio and only a small portion of those quotes are relevant to a liquidity provider. Further, based on the speed in which quotes change, the information may only be relevant for fractions of a second.
Liquidity providers are able to observe trades reported to market data vendors in a simplistic fashion now that provides very little information beyond the price, quantity, time and exchange origin of a transaction. This information is marginally valuable in its raw form.